Bankruptcy Law: Chapter 7 vs. Chapter 13

For anyone considering seeking bankruptcy relief, understanding the bankruptcy system is of utmost importance. For this reason, we have created a number of short articles that briefly explain some of the most essential aspects of the bankruptcy process. In this particular post, we will be discussing the difference between Chapter 7 and Chapter 13 bankruptcy.

The laws regarding bankruptcy are found in Title 11 of the United Stated Code. Each Chapter of the Title deals with certain parts of the bankruptcy process. For example, Chapter 1 provides general provisions and definitions as they apply to the bankruptcy process. Several chapters deal with specific relief for specific types of debtors. Chapter 11 provides the rules and law for the reorganization of large companies that want to keep operating. Most individual debtors are concerned with either Chapter 7 or Chapter 13.

Chapter 7 is the most common chapter used by individuals in debt. It is considered to be the quickest and least expensive way of obtaining relief. When filing under Chapter 7, most of your unsecured debts are discharged–meaning they are eliminated and cannot be collected. Usually you cannot eliminate taxes, student loans, or child support. You also may not be able to eliminate some debts associated with a divorce. At Westlake Legal Group, we can analyze your debts and give you an accurate prediction of the likelihood of their discharge.

Chapter 13 is referred to as an adjustment of debt and is used when a debtor has regular income and can pay his or her living expenses, but cannot make all the payments on his or her regular, scheduled debts. Essentially, the debtor cannot make all his payments but can make some contribution to paying back his debt. Often people with higher incomes are required to initially file under Chapter 13. Under a Chapter 13 filing, the Court adopts a payment plan you can afford. The plan stops the accrual of interest on unsecured debt and can require payments for up to five years. If all the debt can be paid off sooner once interest is stopped, the plan may be for a shorter period. One is eligible for Chapter 13 relief if his or her unsecured debts are below $360,475 and his or her secured debts are less than $1,081,400.

For more information regarding Chapter 7 or Chapter 13 bankruptcy, follow this link to a helpful site, or give us a call at Westlake Legal Group to set up an appointment.